THE DISTILLERY: Woolies hustle

In altering its customer rewards program, Woolworths is proving itself to be reactionary to the reawakened Coles, rather than a market leader. That's the opinion of The Australian's John Durie. Also in this morning's edition of The Distillery, The Age's Eric Johnston says National Australia Bank is looking at covered bonds again as Europe falters, while another commentator takes a look at JP Morgan's battered reputation.

The Australian's John Durie reports that Woolworths is poised to return fire on Coles with a revamped rewards program.

"A spokesman confirmed the move yesterday but declined to offer any details other than it would be substantially bigger than the Coles offer. The quick response to Coles' My5 discount offer is clearly an attempt by Woolies boss Grant O'Brien to neutralise his rival's scheme and again portrays him as being reactive rather than the market leader. The competitive dynamic comes as the ACCC is ramping up efforts to see if the big two supermarkets chains are using their market power to hurt suppliers. The regulator has a team in the field making preliminary inquiries to see whether there is enough evidence to build a case against Coles and Woolies.”

The Age's Eric Johnston reports that National Australia Bank is considering tapping the covered bond market again amid growing tensions in Europe.

"Turmoil in Europe from the end of last year and into this year has meant banks have been slower than usual to secure wholesale money to fund their lending books. But banks are again thinking about interest in covered bonds to help keep average funding costs low. Australian regulators last year relaxed rules allowing local banks to issue covered bonds. The bonds give money-market investors a claim to some bank assets, such as mortgages, which means they come with a solid credit rating.”

The Age's Malcolm Maiden says JP Morgan's current predicament reminds him of the situation that John Meriwether's Long Term Capital Management group got itself into in 2008, though on a smaller percentage of the balance sheet.

"LTCM was also caught with arbitrage positions that went onto losses when prices did not converge. The losses multiplied as rival firms traded against its positions, and it was eventually subjected to a $US3.6 billion Wall Street bailout that was coordinated by the US Federal Reserve. JPM will also pay a reputational price. It was not untouched by the 2007-09 financial crisis but it was strong enough to acquire two of the crisis casualties, Bear Stearns and Washington Mutual, and overtook Bank of America as the largest US bank late last year. Its record of sound management is tarnished by the derivatives loss, which Dimon said flowed from a hedging strategy that was flawed, complex, poorly reviewed, poorly executed, and poorly monitored.”

And The Sydney Morning Herald's economics editor Ross Gittins has had some time to think about the budget and is pretty unimpressed with the engineering of Treasurer Wayne Swan.

"Nothing demonstrates how contrived this budget is better than the expected real growth in government spending. In the financial year just finishing, 2011-12, spending is expected to have grown by a whopping 4.8 per cent. In the budget year 2012-13, it is budgeted to fall by a whopping 4.3 per cent. But the following year it resumes its rapid upward climb, growing by 3.7 per cent. The year after, up by a modest 2 per cent, and in the last year of the forward estimates, 2015-16, up by 2.9 per cent. The budget papers helpfully note that, if you roll together the old year and the budget year, the average rate of growth is just 0.3 per cent. This tells us, first, much of the real fall in spending in the budget year is achieved by the simple expedient of pushing spending back into the old year. Second, to have real spending growing for two years in a row at an infinitesimal rate is quite unnatural. And since there have been no announcements of swinging spending cuts, such a situation could only have been contrived.”

Still on economics, The Sydney Morning Herald's Jessica Irvine runs through the method used by the Australian Bureau of Statistics to explain why last week's jobs numbers might have been a bit stronger than expected. Elsewhere, The Australian's economics editor David Uren looks at the most bearish of China observers, while The Australian Financial Review's Chanticleer columnist Tony Boyd says BHP Billiton is similarly concerned.

Speaking of BHP, The Age's Peter Ker says the miner's petroleum chief executive T Michael Yeager will get a chance to defend the company's gas strategy in Adelaide today.

The Age's Adele Ferguson says new Billabong International chief executive Launa Inman won't have long to find her feet with investors patience in the surfwear company stretched to the limit.

And finally, The Age's Mathew Murphy finds some bullish predictions for Facebook's imminent IPO.